Personal finance advice relies on shame; what if we tried empathy? – CNBC

When June applied to be on the Suze Orman show in 2012, she was a young doctor making $58,000 a year with $240,000 in student loans from medical school and $40,000 in credit card debt. As a divorced mother with three children, who was also caring for a terminally ill parent, June’s income barely covered her living expenses. When a friend suggested that she apply to be on the Suze Orman show, June agreed; she wasn’t familiar with the show but figured it couldn’t hurt to get some professional advice. 

Initially, her experience with the show producer was positive. The producer told June that she was working so hard and she was exactly the kind of person Suze wanted to help. 

That’s why she was so surprised when Orman, one of the most well-known faces in the personal finance industry, started off by telling June that she shouldn’t have gone to medical school. Orman then advised her to declare bankruptcy, questioned if she should buy her children Christmas presents, implied that June was spending money on her children to make up for her guilt over the divorce, and said that June’s 16-year old child needed to start working to help take on the responsibility of June’s debt. 

“Tell them the situation you have gotten yourself into.” Suze yelled. “Let them see the reality of when you are irresponsible with facing the truth — what it can cause.” 

This advice may seem shocking, but most traditional money advice is built on shame, often packaged as tough love and personal responsibility. In a shame-based framework, financial stability is accessible to everyone. Certain financial decisions are positioned as entirely positive, such as homeownership and 529 education savings plans, while other financial decisions are considered wholly negative, such as consumer debt and bankruptcy. Not only are these decisions wrong, but they are presented as a failing for which the individual is solely to blame. 

From the over-simplified math of David Bach’s “The Latte Factor,” to Dave Ramsey’s condemnation of nearly all debt, to the media’s obsession with extreme frugality and early retirement, the message is clear: If you’re struggling financially, you only have yourself to blame. In this mythology, only once an individual takes full responsibility for their situation, will they be able to make the so-called right choices in order to achieve financial prosperity.

The problem is shame doesn’t work. First off, telling people their financial circumstances are entirely their fault just isn’t true. In fact, it’s been proven over, and over, and over, that wealth gaps are systemic and created by public policy, not by individual choices. 

The problem is shame doesn’t work.

This kind of advice also ignores the reality of a shifting financial landscape, with skyrocketing costs of living and stagnant wages. Home prices are rising faster than income in 80% of U.S. cities, health-care costs have grown twice as fast as wages, and child-care costs have increased 2000% over the past 40 years

The rise of the gig economy leaves more and more Americans without consistent income or access to affordable health care. Even before Covid-19, one in every 10 U.S. workers was underemployed. And student loan debt is at a record high. Yet the personal finance industry continues to ignore the data and doubles down on the myth that if people aren’t financially secure, it’s entirely their fault. 

The second issue with shaming people about their finances is that it backfires. Instead of engaging or motivating people, shame has the opposite effect: It causes people to have a fight-or-flight response which reduces their ability to process information. Shame does not motivate behavioral change. In fact, it reduces willingness to try new behaviors out of fear of the negative consequences of making a mistake. As June was berated by Orman, she said, “it felt like there was white noise in my head. I could feel my cheeks getting hot. I just disassociated.”  

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After her experience on the Suze Orman show, June tried working with a few other financial advisors and had similarly frustrating experiences. 

“They had this mentality that ‘this is on you, and you need to pull yourself out of this somehow,’” she says. Eventually, June just gave up on getting professional help. “I decided I’m not going to talk to anyone else about this because I don’t need to be told what an idiot I am.”

So if Americans are in financial crisis and shaming doesn’t inspire change, what will? We believe the answer is empathy. Unlike shame, empathy actually does work to create long-term behavioral change. Empathy is adaptive, realistic and has been shown to cause a growth mindset, meaning that individuals are more likely to put in effort to improve, rather than seeing their traits and abilities as fixed and therefore not worth trying to change. 

The effectiveness of empathy is already being studied in the medical field. In a 2015 study by researchers at Florida State University College of Medicine, patients with obesity who were shamed by their provider were three times more likely to still be obese four years later than patients who recieved neutral or empathetic treatment. Conversely, a study in 2019 showed that patients with type 2 diabetes were 40% less likely to die of a heart related event if they had a highly empathetic provider. Research in the areas of addiction, family welfare and smoking cessation all paint a similar picture: more empathy means better results. 

We’re not suggesting that empathy equals apathy, or that we should abandon advice-giving and financial education. But the way that advice and education is being delivered isn’t working. If it was, we wouldn’t see 74% of Americans living paycheck to paycheck and 4 in 10 unable to find $400 to cover an emergency. It’s time for a new model: from shame to empathy. 

This new model starts with listening without judgement or the assumption that there is a single correct answer. It means helping somebody understand their finances in the context of their emotional, generational and societal circumstances. When people stop viewing their situation as an individual failing and come to understand them as part of a shared human experience, it reduces feelings of fear and anxiety.

Under this new model of personal finance, the expert will shift the focus from past mistakes to what’s working, showing empathy and encouraging the practice of self-compassion in order to build resilience, which is needed in order to make small improvements. 

This new model starts with listening without judgement or the assumption that there is a single correct answer.

How would this model work in practice? For June, it would look like someone listening to her without serving up judgement or oversimplified fixes, then helping her identify an area where she’s already succeeding and building on that, instead of focusing exclusively on what’s not working.

What June needed was empathy: She was in a tough situation partly because of her choices and partly because of issues out of her control, such as her divorce and her parent’s illness. Her finances were not a reflection of her moral character, and small wins combined with self-compassion could help improve the situation. 

Instead, June was left trying to navigate her financial distress on her own. Eight years later, she has a thriving medical practice, has raised happy, confident children and she’s grateful she ignored Orman’s advice. Like most doctors, she still has a lot of student loan debt, but she’s managed to pay off all of her consumer debt. She bought life insurance and started saving for retirement. She still doesn’t feel financially stable, but she is proud of what she’s been able to accomplish. Even though she wishes she had a trusted advisor who could help her, she says she’s done taking advice from personal finance experts: “I can’t deal with that attitude anymore.” 

As COVID-19 takes an enormous toll on our country — decimating lives, jobs and bank accounts — a new model for personal finance is needed more than ever. We need to admit that what we’ve been doing hasn’t been working. It’s time to look to the science and practice of empathy to do what shame hasn’t been able to.

The other option? Continuing the false narrative of shame and blame and insisting that financial hardship can be willed away. Or, as Dave Ramsey recently asked his readers: “Are you letting COVID-19 destroy your long-term money goals?”

Emma Pattee and Stefanie O’Connell Rodriguez are cofounders of Statement: a platform dedicated to connecting the dots between gender, equity and money by facilitating conversations between financial services, public policy experts, economists and financial media.

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